Home loan borrowers may no longer have to wait for the Reserve Bank of India to ease interest rates as government is planning to furnish cheap housing credit through another window.
“The Indian Bankers Association (IBA) has been asked to look into ways to provide affordable credit to home loan borrowers,” a senior government official told Deccan Herald.
He said the step has been taken to minimise the impact of high cost of credit for housing and other sectors, which have suffered due to high rate of interest in the past couple of years.
High inflation and high interest rates in the past two years have impacted the small home loan borrowers the most and they are increasingly finding it difficult to pay their monthly installments. This has significantly contributed in increasing non-performing assets or bad loans of the banks.
According to official statistics, borrowers availing credit up to Rs 5 lakh are not being able to repay loans despite a subsidy provided by the government. Finance Minister P Chidambaram had recently asked the IBA to form a committee to advise the government on tackling the slowdown in the housing demand.
The committee will also look into ways to sell a large number of housing units laying vacant for want of credit. According to the finance minister, in Mumbai alone, there are more than 5 lakh housing units ready to be sold but there are no buyers.
Banks have not been coming forward to lend for housing sector and official data shows that bank NPAs on the loans of upto Rs two lakh have risen 10.28 per cent in the last financial year. In the year 2010-11, the NPAs were 6 per cent.
Banks’ bad loans in upto 5 lakh housing loan segment have risen more than 11 per cent in the fisal year just gone by, where this has remained only a little over one per cent in the loans above Rs 25 lakh.
At present, the banks charge anything between 10 per cent and 13 per cent on home loans, the IBA-led committee is expected to suggest ways to reduce these rates. To improve affordability of housing in lower and medium income groups, the government has also extended the scheme of 1 per cent interest subsidy on housing loans upto Rs 15 lakh for one more year till 2013.